INTERNATIONAL TRADE LAW
Incoterms 2020: A Practical Guide for Exporters
Incoterms are the 11 standardized trade terms published by the International Chamber of Commerce (ICC) that define exactly where the seller’s responsibility for cost, risk, and delivery ends and the buyer’s begins. Choosing the right one — and writing it correctly in your contract — decides who pays freight, who bears the loss if goods are damaged, and who clears customs at each border. The current version is Incoterms 2020, in force since January 1, 2020.
Picking an Incoterm is not a formality. The three letters you put on a quote silently allocate thousands of dollars in freight, insurance, and duty, and they set the precise moment your risk in the goods passes to the buyer. Get them wrong and you can find yourself liable for a loss you assumed was someone else’s.
What Incoterms do — and don’t — cover
Incoterms allocate three things between seller and buyer: cost (who pays for carriage, insurance, and clearance), risk (the point at which loss or damage passes to the buyer), and obligations (who arranges transport, export and import clearance, and documentation).
They do not cover transfer of title or ownership, the price or payment method, or the consequences of breach. Those belong in your sales contract and your chosen payment terms. Treat the Incoterm and the contract as a pair, not a substitute for one another.
The 11 rules, in two families
Incoterms 2020 splits into seven rules usable for any mode of transport and four reserved for sea and inland waterway shipments.
| Rule | Name | Risk transfers to buyer when… |
|---|---|---|
| EXW | Ex Works | Goods are placed at the seller’s premises |
| FCA | Free Carrier | Goods are handed to the buyer’s carrier |
| CPT | Carriage Paid To | Goods are handed to the first carrier |
| CIP | Carriage and Insurance Paid To | Goods are handed to the first carrier (seller insures, all-risks) |
| DAP | Delivered at Place | Goods arrive, ready for unloading |
| DPU | Delivered at Place Unloaded | Goods arrive and are unloaded |
| DDP | Delivered Duty Paid | Goods arrive cleared for import, duties paid |
| FAS | Free Alongside Ship | Goods are placed alongside the vessel |
| FOB | Free On Board | Goods are loaded on board the vessel |
| CFR | Cost and Freight | Goods are loaded on board the vessel |
| CIF | Cost, Insurance and Freight | Goods are loaded on board (seller insures, minimum cover) |
The first seven (EXW through DDP) work for road, rail, air, or sea. The last four (FAS, FOB, CFR, CIF) are sea and inland waterway only — they describe delivery in terms of a ship’s rail or hold, which makes no sense for an aircraft or a truck.
What changed in Incoterms 2020
If you are working from older guidance, two changes matter most:
- DAT became DPU. “Delivered at Terminal” was renamed Delivered at Place Unloaded to make clear that the named place need not be a terminal — it is the only rule that requires the seller to unload.
- CIP now requires higher insurance. Under CIP the seller must provide all-risks cover (Institute Cargo Clauses A), while CIF still requires only minimum cover (Clauses C). If you sell on CIP, budget for the broader policy — this ties directly to your cargo insurance decisions.
Common pitfalls for exporters
- Using EXW to “keep it simple.” EXW puts export clearance on the buyer — awkward for U.S. exporters, who still need to ensure the Electronic Export Information is filed. FCA usually serves the same goal without that problem.
- Using FOB for containers. FOB is for goods loaded across a ship’s rail in bulk or break-bulk. For containerized cargo handed over at a terminal, FCA is the correct rule; misusing FOB can leave a risk gap at the container yard.
- Forgetting the Incoterm affects customs value. Whether freight and insurance are inside the price (CIF, CIP) or outside it (FOB, FCA) changes the basis on which the importing country assesses duty.
- Naming a vague place. “FCA Texas” is not enough. Always state the precise named place or port, because that point is where risk and cost shift.
Frequently asked questions
What is the current version of Incoterms?
Incoterms 2020, published by the International Chamber of Commerce and in force since January 1, 2020. It contains 11 rules and is the version contracts should reference today.
What is the difference between FOB and FCA?
FOB applies only to sea and inland waterway transport and passes risk when goods are loaded on board the vessel. FCA works for any mode and passes risk when goods are handed to the buyer’s carrier — the correct choice for containerized or multimodal shipments.
Do Incoterms transfer ownership of the goods?
No. Incoterms allocate cost, risk, and delivery responsibilities only. Transfer of title, the price, and payment terms are governed by the sales contract, not the Incoterm.
Which Incoterms require the seller to buy insurance?
CIP and CIF. Under Incoterms 2020, CIP requires all-risks cover (Institute Cargo Clauses A) and CIF requires minimum cover (Clauses C). On the other nine rules, insurance is optional but often advisable.
The Incoterm on your quote is a legal allocation of risk, not shipping shorthand — and the wrong one can hand you a loss you never agreed to carry. Reidel Law Firm prepares flat-fee import/export compliance memos that set the right Incoterm, insurance, and payment structure for each lane, with direct attorney access. Get a flat-fee import/export compliance memo →.
